How is profit calculated?

Profit is calculated as total revenue minus total costs. This fundamental equation reflects the basic principle of profitability in economics. Total revenue is the income generated from selling goods or services, while total costs include all expenses incurred in the production process, such as fixed and variable costs.

By subtracting total costs from total revenue, you arrive at the profit figure, which indicates the financial gain or loss from business operations. A positive result signifies a profit, meaning the business made more money than it spent, whereas a negative result indicates a loss.

The other provided choices misrepresent the relationship between revenue and costs. For example, total revenue plus total costs would inaccurately suggest a cumulative figure rather than a measure of profitability. Multiplying total costs by outputs does not yield any insight into profit but rather an assessment of total costs based on production volume. Lastly, average revenue minus variable costs does not capture the complete picture of costs since it ignores fixed costs, leading to an incomplete calculation of profit.